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Both the National Futures Association and the CFTC have apparently de-listed Performance Capital International Inc. The NFA says on its website their membership was withdrawn on July 26, 2007. The most recent CFTC report also shows Performance as a member of its "deletions" category right next to FX Option1 Inc and the Cal Financial Corporation. http://www.cftc.gov/files/tm/fcm/tmfcmdata0706.pdf
The website says they are "under construction" and the word on the street is that they are no longer accepting new customers. However, they are still a member in good standing with the NFA according to the NFA's website so I won't pronounce them dead quite yet. But it looks like they have one foot in the grave.
Coming up Next Week:
1) New CFTC Capital Numbers - Some of the numbers will surprise you
2) A Three part Series on the Demise of the Concorde Forex Group
3) The Sordid Saga of Crooklyn native Udo Rotmistrenko
I assume the capitalization figures posted by the NFA for its members is supposed to represent funds owned by and held by the brokers for the purpose of doing business, which includes maintaining liquidity. I assume this amount is totally unrelated to customer-owned funds used as margin requirements for trading.
Are these assumptions correct?
What I don't understand is why the NFA REQUIRES brokers to make it plain that customers funds are NOT protected by being kept in a separate account, totally untouched by the brokerage or its business partners. It seems to me that the only positive or negative effect upon my funds should be my own trading decisions and that otherwise, account funds not currently required to maintain margin are safely in the bank. Why couldn't a brokerage be run this way and why wouldn't this benefit the trading customer?
__________________ Success is more perspiration than inspiration . . .
I have spent a lot of time discussing the issue of forex fraud and how this has been one of the motivating factors driving the regulators' desire to raise capital requirements. But the issue of broker dealer insolvency is in many respects more pressing. The failure rate for firms with capital below $5 million is shockingly high. And why is that? Because too many people think running a forex broker dealer is as easy as running a bagel shop. But this next three part series on the demise of Forefront Investments (aka CFG) is evidence of how difficult it is to run a forex brokerage and why as a result of CFG’s collapse the NFA has an even stronger case to raise capital requirements.
I first became interested in the CFG case when an attorney posted this thread at Forex Factory:
(CFG Trader/Snellgrove) asking former customers of CFG to contact him if they were still owed money. Still owed money? That piqued my curiosity. And so I began digging through the wreckage of CFG. Here is what I discovered:
Originally the firm was in the forex training business. Essentially, for a fee, CFG would assign traders a mentor whose job it would be to teach “the forex” to rookie traders. While some customers complained about the ineffectiveness of the training (Rip Off Report: CFG - Concorde - Concorde Forex Group - Concorde Financial Group - Don Snellgrove Absolute GARBAGE Total failure of me and many others Richmond Virginia) there are no indications that CFG was involved in any fraudulent activities. Indeed, Snellgrove had a reputation for being a very religious man and is quoted on his own website as saying, “We sincerely want people to succeed! Galatians 5:1 in the Bible, states that one should not be under bondage. 99% of the people who talk with me are under the bondage of debt. The Forex market is the largest legal cash flow industry in the world and a potential vehicle to achieve success by just about anyone and thus move out of bondage.” (CFGNews - Page: 8 of 11)
Unfortunately, Snellgrove’s decision to turn his training business into a full fledged forex broker dealer would not only leave his customers still under the bondage of debt, but transform them into the Gimp from Pulp Fiction after the firm went under and their accounts were frozen.
But before going there it is important to review Snellgrove’s career to date. He was a good and moral man, he had a clean regulatory record, his company was fairly transparent as he had an open door policy with all his customers at his rather large office in Virginia, and he had been in the business since the late nineties. But there was one missing ingredient in this forex broker dealer cake: Snellgrove was poorly capitalized. And that’s why the firm went under. More to come…
Page 42 of the current issue of Currency Trader Magazine (Free Subscription) has an article about the new NFA proposal. It reports on exactly what I have been saying these last few weeks. (Currency Trader Magazine -- July 2007)
.
You forgive one key my dear:
Quote:
Naturally, there is opposition from the less-capitalized firms. In a comment letter to the NFA, Knight Capital Group, which owns Hotspot FX, agreed that greater oversight is needed but doesn’t think a “one-size-fits-all” solution will
work.
“Certain FDMs, like Hotspot, do not operate their business like a traditional dealer. They automatically offset (real-time) all client trades with bank market makers or client subscribers.
As such, Hotspot effectively operates on a ‘riskless principal’ basis on behalf of its clients, thereby reducing dramatically any associated risk with that transaction and its clients’ funds,” Knight said in the letter.
“Thus, since Hotspot and other FDMs similarly situated do not directly offset client trades, they are not subject to the same market volatility and risk as are FDMs that take the other side of client trades and put their client accounts (deposits) at risk.”
So, the new NFA proposition only have a couple of winners. Dealing Desk brokers.
There is no new proposition to quotes manipulation, stop loss hunting, requoting, invented moves, spread widening, and every practice that dealing desk brokers practice with US.
On a few words, just more margin requirements. No new ethics and practice rules, no big deal to make the forex business transparent.
In less and less few words: if you have the money, you could keep playing your dirty games against customers.
So, the new NFA proposition only have a couple of winners. Dealing Desk brokers.
There is no new proposition to quotes manipulation, stop loss hunting, requoting, invented moves, spread widening, and every practice that dealing desk brokers practice with US.
On a few words, just more margin requirements. No new ethics and practice rules, no big deal to make the forex business transparent.
In less and less few words: if you have the money, you could keep playing your dirty games against customers.
Please, tell me if I´m wrong.
I feel the same as you. NFA needs to regulate FDMs such as seperating clients accounts only for trading, insurance, or preventing FDMs from doing dirty things to their clients. What I see now is NFA is not doing anything benefits Forex Traders but these big firms. Anything we can do to for our benefits?
Is there a way, perhaps direct links to search pages, that we could use to check if a broker is registered with the regulatory body they say they are registered with ? (meaning NFA, CTFC, FSA, and others)
I feel the same as you. NFA needs to regulate FDMs such as seperating clients accounts only for trading, insurance, or preventing FDMs from doing dirty things to their clients. What I see now is NFA is not doing anything benefits Forex Traders but these big firms. Anything we can do to for our benefits?
There is much more regulators can do. And perhaps they will do so next year. But the reason they are focusing on capital requirements is because it is the most pressing issue the industry faces. Dealing practices pale in comparison to the problem of broker dealer insolvencies. A dozen firms have gone bust this year. This has to be dealt with first and foremost.
In January of 2007 CFTC reports showed that CFG Trader had $1,790,000 in Adjusted Net Capital. That means they were $800,000 over their required amount. So for the average trader checking in on CFG everything looked good right? Suppose you also checked the NFA website and saw they had a clean regulatory record. Looks good right? You spoke with a smooth talking sales rep and saw they had been in business since the nineties. Looks good right? Boy would you have been wrong. For it was at this time that CFG began to unravel.
According to the NFA in its 2007 audit NFA noted that, “the balances on Forefront’s Form 1-FR dated January 31, 2007, which had been previously filed with NFA, were inconsistent with the general ledger the firm provided to NFA as part of the audit.” Furthermore, “Forefront had failed to include all customer liabilities when preparing its financial statements. As a result, it appears that Forefront was under the required minimum ANC by at least $850,000.”
The next blow came on March 15th BASIC Case Summary …still not having received the updated financial statements, NFA spoke with Snellgrove, Conn, Lani and representatives of the firm’s accounting firm. NFA asked whether Forefront currently had the required minimum ANC. Snellgrove referred the question to Lani who responded that the firm did “not have accurate numbers to work with.” Additionally, Lani indicated that it would be “a fair statement to say that the firm does not know its financial status.”
With CFG’s financials in chaos the NFA notified the CFTC who then went to court to get an injunction to halt the transfer of any money out of the firm. The CFTC injunctive action states the following: http://www.cftc.gov/opa/enf07/opa5310-07.htm
According to the CFTC complaint, as of January 31, 2007, and perhaps earlier, Forefront’s net capitalization was below the adjusted net capital required by the Act and a Commission regulation. As of March 19, 2007, the complaint charges, Forefront’s adjusted net capitalization remained below the required adjusted net capital with Forefront’s total liabilities equaling $8,000,000 while its assets were only $6,760,000. Furthermore, the complaint charges Forefront with failing to maintain books and records that it is required to maintain pursuant to a Commission regulation.
While the CFTC was dragging CFG through the courts the NFA decided to give CFG one final kick in the ribs while they lay curled up in the fetal position by hitting them with a formal complaint regarding their marketing practices on April 4, 2007: BASIC Case Summary
At this point the court approved a receiver to preside over the dissolution of CFG and arrange for a customer buyout. I Trade FX put in the highest bid and then proceeded to take over CFG’s customer accounts. http://www.cftc.gov/opa/enf07/opa5311-07.htm
The swift and stunning collapse of CFG ended happily enough with customers getting their money back. But it could have been much worse. What would have happened if a creditor had interceded to lay claim to customer funds as happened with the customers of RefcoFX? In such a drawn out situation a potential buyer would have been scared off and by the time the estate was settled (minus the huge legal fees of course) customers would have been lucky to get back a fraction of their investment.
This is just one of the lessons to be learned from the Collapse of CFG. I will review the others tomorrow in “Part III – Lessons from the Collapse of CFG.”
But, why, if i want to start my own brokerage house I would need 5 million.
My imaginary brokerage house does not have dealing desk, I just provide the software, the feed, and lives by forwarding all trades to liquidity providers (banks) and charging a little commission fee to customers.
And customer funds are in the segregated way as a futures broker does.
So, the only risk is a EMP of a nuclear blast.
You´re defending what it´s impossible to defend. Maybe I feel you're doing lobby in our forum.
Question: Why not NFA forces brokers to segregate customer funds?
Success is more perspiration than inspiration . . .
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